Jobs Shock Triggers Selloff, Fed Cut Odds Surge Ahead of September Decision

Weak Payrolls, Sharp Revisions Drive Broad Market Selloff and Fuel September Rate Cut Expectations

The July jobs report dealt a sharp blow to markets, revealing unexpected weakness in the U.S. labor market. Only 73,000 jobs were added last month, well below expectations of 104,000. But the real surprise came from deep downward revisions to prior months—May and June payrolls were revised lower by a combined 258,000 jobs. That brought the three-month average down to just 35,000, the slowest pace since the pandemic.

Unemployment rose to 4.2% from 4.1%, and labor force participation slipped to 62.2%, a 20-month low. Manufacturing lost 11,000 jobs in July—its third straight monthly decline—even as tariffs aimed at protecting domestic production moved higher.

Markets Slide as Traders Reprice Fed Outlook

Equities sold off sharply on the data. The Dow fell 542 points (-1.2%) to 43,588. The S&P 500 dropped 1.6% to 6,238, and the Nasdaq slid 2.2% to 20,650.

Bank stocks led the decline as investors priced in a higher probability of Federal Reserve rate cuts. Citigroup sank 6.5%, Wells Fargo lost 5.6%, and Goldman Sachs fell 5.3%.

Rate cut odds for September jumped from 40% to 75.5% following the report. Even strong earnings from Apple ($94.04B revenue, +2.6% y/y) and Amazon weren’t enough to offset the bearish shift—both stocks declined as macro risk took over.

Fed Policy Now in Focus as Labor Data Weakens

The weak jobs report added weight to prior warnings from Fed Governor Christopher Waller, who said private payroll growth was nearing stall speed. He was one of two dissenters at July’s FOMC meeting, favoring a cut. Following the report, several firms—including Goldman Sachs and UBS—moved their base case for a rate cut to September.

Tariff Uncertainty Adds to Corporate Pressure

Rising tariffs continue to complicate the outlook. Executives across manufacturing sectors cite a lack of clarity on future input costs, leading to cautious hiring and capex decisions. Ford expects a $2B tariff hit in 2025. Apple reported $800M in Q2 tariff-related costs and expects another $1.1B in Q3.

In the public sector, recent federal workforce reductions have eliminated 84,000 jobs since January, the largest non-recessionary cut in decades, adding further weight to the slowing jobs trend.

Defensive Rotation Builds Ahead of Fed Decision

The selloff triggered a classic risk-off move. Treasury yields dropped, with the 10-year falling to 4.22%. The U.S. dollar index slid over 1%, while gold gained 1.9% and the VIX surged 25%. Equity rotation favored defensive sectors like utilities and staples, while growth tech saw renewed pressure despite strong fundamentals.

With two more jobs reports due before the next Fed meeting on September 16–17, traders will stay focused on labor signals, inflation inputs, and Fed commentary. Rate cut expectations are rising—but so is uncertainty.

More Information in our Economic Calendar.